Why Intel Corporation Is Betting Big on Cellular

By Markets Fool.com

When Intel acquired Infineon's wireless division a while back, it seemed that the primary purpose of this acquisition was to be able to have the right technology to compete in smartphones and cellular tablets.

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The company is still making significant investments in its cellular technology in order to be more competitive in the smartphone market. However, Intel seems to believe that cellular technology will be critical in order to effectively compete in the tablet and even the PC markets over the long run.

A very interesting slide
At Intel's investor meeting last year, CEO Brian Krzanich presented the following slide:

Source: Intel.

What's interesting is that while cellular modem penetration is not high in laptops or even tablets today, Intel is betting on a big shift in the future. The company forecasts that by 2022, between 40% and 60% of laptops will come with cellular capabilities and what looks to be anywhere from 70-80% of tablets will have cellular capability.

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If true, Intel needs to invest
Even if the low end of Intel's forecasts pan out, the majority of tablets and nearly half of laptops will require cellular connectivity. Since Intel bills itself as a "platform company," and given that cellular connectivity will -- according to company executives -- become an integral part of many relevant computing platforms, Intel management likely feels that it has little choice but to invest aggressively in this market.

If Intel didn't invest, it seems that it would not only be barred from the smartphone market (where Intel is still trying to make a dent today), but that it would have a very tough time competing in tablets in coming years. Intel would also seemingly miss out on an opportunity to gain additional chip content in PCs.

Other opportunities beyond PCs and tablets
Intel's CFO said at the 2014 investor meeting that pretty much everything Intel works on essentially feeds back into its PC business one way or another. So, if Intel thinks that modems will be an important part of maintaining a dominant position in PC (its largest source of profit), then it will invest heavily in cellular modems.

The nice thing about the cellular investment, though, is that it has the potential to open up entirely new revenue streams for the company and strengthen its position in markets that it's currently in.

Smartphones are arguably the most significant potential opportunity for Intel, as there is a large market for stand-alone modems and integrated applications processors with modems. Other business units within Intel, such as its Internet of Things group, should benefit from Intel's in-house cellular capabilities, too.

Why Intel won't give up in mobile anytime soon
Intel executives spent a lot of time talking about the company's "shared investment model" at its analyst day last year. According to the company's CFO, the cost required to build a substantial base of IP is very high, but once that base of IP is in place, it's relatively cheap to move into adjacent markets.

Intel needs to develop just about all of the technology that goes into mobile devices for the PC market, anyway, including cellular. This means that if Intel is serious about expecting much of the PC market to require cellular connectivity, it wouldn't make sense for the company to exit smartphones and tablets.

The savings wouldn't be all that large, particularly relative to the opportunities that Intel would ultimately leave on the table.

The article Why Intel Corporation Is Betting Big on Cellular originally appeared on Fool.com.

Ashraf Eassa owns shares of Intel. The Motley Fool recommends Apple and Intel. The Motley Fool owns shares of Apple. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.